ShipRecycling Pages:

21 January 2017

Scrapping continues at high rates in 2017, reflecting industry shifts

Dive Brief:

Already in 2017, 35 container vessels, equal
to approximately 119,500 TEU, have been designated as scrap material. In 2016,
only 9 vessels at 27,000 TEU had been scrapped by mid-January, The Loadstar
reported Tuesday.

Scrapping appeared to be a better option as
charter values for the 4,000-5,100 TEU class of panamax ships dropped up to 60%
due to weak demand, leading 52 ships to be scrapped and 88 idling in 2016.
Meanwhile, scrap rates are on the rise, which appeals to owners with too much
tonnage on their hands: the current rate is $336 per light displacement
tonnage.

The rise of scrapping and decline of
chartering, however, leads The Loadstar to question the future of the
non-vessel operating carriers, which rely on charters for business.

Dive Insight:

The shipping industry continues to scrap
vessels at extremely high rates, and while some (like Maersk Group CEO Soren
Skou) believe such tactics to cut capacity is helping to raise shipping rates,
the trend also reflects basic economic principles and the industry's turn
toward larger vessels instead of the popular panamax-class ship.

An analysis of Alphaliner's data reveals the
top 10 carriers only owned a combined
1,000 ships, which can carry a total 6.5 million TEU, whereas the carriers
charter 1,573 vessels for roughly 7.6 million TEU. The large difference in
number of shifts coupled with a slight difference in capacity reflects a
large-carrier preference for larger vessels: on average the top 10 carriers own
vessels with roughly a 6,500 TEU capacity while they charter panamax-sized
vessels of roughly 4,817 TEUs. Meanwhile, the carriers' orderbooks reveal, on
average, they are investing, on post-panamax class ships of 12,000+ TEUs, which
would provide the combined carriers 263% more capacity than is currently
chartered.

In other words, non-vessel operating carriers
are being faced with the challenges of both industry consolidation at the top
and the economic challenge of fluctuating rates described by The Loadstar.
However, there may be a light at the end of the tunnel: as the industry
consolidates at top, those left behind are being forced to move away from
global trading lanes into a more regional presence, where panamax vessels may
still thrive.

Regardless, the high scrapping rates lead to
another, often unanswered question: what happens to the materials left behind
after a ship is scrapped?

A recent town hall held by the U.S. Maritime
Administration reveals that, at least in the U.S., ships are being recycled as
the most cost-efficient method of vessel displacement. That is because, unlike
other methods such as sinking to create artificial reefs, recycled metals from
these thousand-ton vessels can be sold as raw steel and boost the industry,
creating an additional source of supply for the nation's metal needs.